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    IRAs: How to make an early withdrawal

    Exceptions to 10% penalty include medical expenses, first-time home purchase


    Withdrawals for first-time home purchases (up to a lifetime limit). This exception allows penalty-free IRA withdrawals to the extent the money is spent by the IRA owner within 120 days to pay for qualified acquisition costs for a principal residence. However, there's a lifetime $10,000 limit on this exception. In addition, the buyer of the principal residence (and the spouse if the buyer is married) must not have owned a present interest in a principal residence within the 2-year period that ends on the acquisition date. Qualified acquisition costs are defined as costs to acquire, construct, or reconstruct a principal residence, including closing costs.

    Have you read: This trust may benefit special needs individuals

    Withdrawals for qualified higher education expenses. Early IRA withdrawals are penalty-free to the extent of qualified higher education expenses paid during the same year. The qualified expenses must be for the education of the IRA owner or the IRA owner's spouse, or a child, stepchild, or adopted child of the IRA owner or the IRA owner's spouse.

    Withdrawals by military reservists called to active duty. This exception applies to certain early IRA withdrawals taken by military reserve members who are called to active duty for at least 180 days or for an indefinite period.

    Also see: Can life insurance be used to pay estate taxes?

    If you think you qualify for an exception to the 10% penalty on early traditional IRA withdrawals, consider involving your tax professional before making early withdrawals to be certain you do indeed qualify for the exception.

    Next: Can I add a vacation home to my current homeowner's insurance policy?

    Joel M. Blau, CFP
    Mr. Blau is chief executive officer of MEDIQUS Asset Advisors, Inc., in Chicago. He can be reached at 800-883-8555 or [email protected]
    Ronald J. Paprocki, JD, CFP, CHBC
    Mr. Paprocki is chief executive officer of MEDIQUS Asset Advisors, Inc. in Chicago.


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